Yahoo Finance Lords call for the banks to get back to basics
There are almost 8m basic bank accounts open in the UK, and most of the big banks offer them, but they are arguably the Cinderella of the financial services world. You won’t find sports stars appearing in multimillion-pound TV adverts to plug them, or billboard posters extolling the virtues of these no-frills accounts. But perhaps that could be set to change.
In a report on tackling financial exclusion, a House of Lords committee says banks must be “much more proactive” in promoting their basic accounts. It claims that in some cases, even branch staff are unfamiliar with them, and recommends that the government should “require” banks to properly promote them, in branches and via advertising.
So what exactly is a basic bank account, who are they aimed at, and what about some of the alternatives to a traditional current account suitable for the people the big banks don’t want or struggle to cater for, such as migrants and those with a poor credit history?
A basic account is a simplified form of current account. They provide day-to-day banking services – you usually get a debit card and access to cash machines, plus you can set up direct debits and standing orders. However, it is impossible to go overdrawn, which means no nasty charges if you go into the red. They can therefore be offered to people with poor credit ratings and those who might not qualify for other products, as well as people who don’t want a conventional account.
Just over two years ago the government struck an agreement with 14 of the biggest banks to “improve” basic accounts. This has meant that since January 2016 they are completely fee-free for all “standard operations”. This means they might appeal to people who want to be sure they won’t run up any charges. But usually they don’t come with a cheque book or pay credit interest.
Lloyds Banking Group, which includes Halifax and Bank of Scotland, dominates this sector –it has a 49% market share and has been opening around 25,000 basic accounts a month.
The Lloyds, Halifax and Bank of Scotland products are all simply called the Basic Account. Meanwhile, the Co-operative Bank says its basic Cashminder account makes up around 20% of all its current accounts.
Other providers include Barclays (Basic Current Account), HSBC (Basic Bank Account), Nationwide (FlexBasic), NatWest (Foundation Account), Royal Bank of Scotland (Basic Account), Santander (Basic Current Account), TSB (Cash Account) and Yorkshire Bank/Clydesdale Bank (Readycash).
Norwich & Peterborough building society offered a basic bank account up until a few years ago, and those who still hold it will have to bank somewhere else because it is closing all of its current accounts by 31 August.
The banks typically argue that they don’t make any money from their basic accounts – in fact, they say they end up making a loss. There are the costs associated with setting them up – and, of course, customers won’t be paying overdraft charges. This is probably why some banks don’t offer them at all, and may help explain why they are arguably not very well promoted. In its report, the House of Lords committee says it was told that “even branch staff were sometimes unaware of them”.
Some people holding older basic accounts are still not benefiting from completely fee-free banking. The vast majority of these are operated by the Lloyds group, and one of the accounts affected is the no-longer-available Halifax Easycash, where a customer can be hit with up to three £10 “returned item fees” a day when there is not enough money in the account to make a payment. However, the good news is that by the end of this year, all the group’s basic bank accounts, including those opened years ago, will be completely fee-free. The group adds that it had written to existing basic account customers who were eligible for its new product and gave them the option to move.
Available alternatives
Some credit unions offer current accounts. In January, the Guardian told how the Engage current account was being offered by several, including Lewisham Plus Credit Union in south-east London. It works in exactly the same way as a high street account, but there is no overdraft facility.
However, there are big downsides: Engage carries a management fee (Lewisham Plus charges £5.95 a month), plus other fees, and it is also not covered by the Financial Services Compensation Scheme.
There is also the Post Office Card Account, which you have to apply for by phone and is described as “an easy way to receive state pensions, benefits and tax credits without a bank account”. There are no credit checks, you can take cash out at any post office, and there’s no overdraft facility “and no charges”. The account was originally going to be ditched in 2015 but will now be available until at least November 2021. However, the government has reportedly been writing to people holding it to request that they use a bank, building society or credit union account instead.
Meanwhile, there are several players that aren’t banks but offer products that are similar to current accounts, though there is usually no overdraft. They include Pockit, whose account costs 99p, with a 99p fee for ATM withdrawals in the UK, and Monese, whose accounts costs £4.95 a month. Then there is eccount money at £12.50 a month, and the U Account, with a choice on fees.
